Investigation the Impact of Business Strategy, Overvalued Equity on Stock Price Crash Risk

Subject Areas : Financial Knowledge of Securities Analysis

A. Heidarzadeh Hanzaee ¹ ( Assistant Prof. Dr. , Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran )
Gh. Hosseinzadeh Zorofchi ² ( M.Sc. student of Financial Management, Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran )

Received: 2018-04-15 Accepted : 2018-09-11 Published : 2019-12-22

Keywords: Business Strategy, Overvalued, Stock Price Crash Risk,

Abstract :

The purpose of this study is to examine the impact of business strategy and overvalued equity on stock price crash risk. Business strategy Following Bentley et al. (2014) research, the stock price crash risk has been measured following Houghton et al. (2014) and overvalued equity, following the model of Foods et al. (2005). Business strategy and overvalued as independent variables, the stock price crash risk as a dependent variable and firm size, company's age, financial leverage, market value to book value and return on assets as control variables. A total of 211 companies listed in the Tehran Securities Exchange have been selected in the Tehran Securities Exchange during the period of six years from 2012 to 2017 according to the society's screening conditions and 1266 company-year observations are included in the statistical analyzes. The research hypotheses have been tested using multivariate regression analysis using Panel data with fix effects. The results of the research show that business strategy and overvalued equity have a significant and positive effect on the crash risk. In fact, stocks of companies with a Prospector strategy are more exposed to the stock price crash risk compared to Defender Strategy companies. If firm size, company's age, financial leverage have a significant effect on the Stock Price Crash Risk, but the market value to book value and return on assets does not have a significant effect on the stock price crash risk.

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